That is the assessment of representatives from Australia-based alternatives manager Select Asset Management. Their view is shared by Select’s investment consultant, global financial services group Neuberger Berman, and distribution partner Winston Capital Partners.
All have teamed up to cater to what they say is a growing appetite for alternatives among financial advisers and their clients.
Winston Capital Partners founding partner and managing director Andrew Fairweather said Australian advisers have been noticeably increasing their allocation to alternatives recently after bearing the brunt of client anger when hedge fund instruments froze or failed during the GFC.
The rate of growth in the alternatives sector globally is around seven times that in traditional asset classes, while a McKinsey report found the sector has now passed its pre-GFC highs.
However, Mr Fairweather cautioned that Australian investors need a global focus with alternatives because most of the opportunities are offshore.
“Alternative investments have a place in a mainstream portfolio but a new way forward is required,” he said.
This includes a renewed focus on liquidity, transparency and cost, he said, declaring the old days of the 2/20 management/outperformance hedge fund fee model are over.
Select chief investment officer Dominic McCormick said alternatives delivered on their goals during the tech wreck in the early 2000s but the industry was smaller then, since growing too fast and too big in too short a time, exacerbating the problems of the GFC.
“A diversified portfolio requires alternative investments but it has been challenging to create vehicles that make sense for retail investors,” he said.
“[Investors] have become even more demanding on liquidity and transparency and fees since 2008.”
An increasing demand for liquidity on the back of fund freezes over the GFC has pushed investors to areas where they can find it, and in the alternatives sector that has largely been in managed futures strategies – but that leads to a diversity risk if other strategies are not being considered, he added.
“There are now a range of strategies where we can create a more liquid and transparent, lower cost exposure to alternatives that meets investor needs in a robust form… That’s what this partnership with Neuberger Berman is about,” he said.
Fred Ingham, managing director of Neuberger Berman’s hedge funds team, said the alternatives sector has seen significant change since the GFC.
The four key areas where people have been disappointed in the sector in the past, and that have since seen improvement, are cost, liquidity, transparency and corporate governance.
Renewed interest in the sector is being driven by an improvement in these structural factors and also by investment factors, with investors seeing alternatives as a key source of alpha in the current environment.
